EURUSD (week: 17-21 Oct. 2005)

Last week we witnessed large movements in the currency markets, with the USD gaining more than 2 cents against the EUR, only to bounce back and re-test 1.2100 on Friday trade. As we anticipated in our previous report, the perspective of the Fed continuing to raise rates at the same "measured pace" proved relevant enough for market participants to sustain the EURUSD decline in the first part of the week. Thus, against a backdrop of relatively hawkish Fed officials comments, few market data and a new rally in gold prices, the greenback managed to break several support levels. On Thursday, following the trade data release in the US, the pair fell as low as 1.1920, where it bounced in heavy volume. Friday was rich in economic reports and market data, that overall set a highly volatile tone for the pair, which finally resumed its new technical upside course and ended the week slightly under 1.2100.

This week, we expect EURUSD to continue its retracement and reach towards the 1.2230 area, the 50% fib level of the descent from 1.2587 to 1.1872. However, we consider the market to be standing on quite shaking ground, and sideways movements are possible until a more solid course will be established for the pair. Fundamentally, the Fed interest rate policy remains in focus, while on the other hand market participants are also eager to evaluate on more solid grounds exactly how uncertain the "great uncertainty" following the hurricanes Katrina and Rita really is. We still believe the USD is in for further gains and a new test at 1.1900 until the end of the year, but until that happens we assume that the week to come EURUSD could retrace some more on a technical scenario.

Thus, on a weekly chart, we see the 1.1920 low of last week standing just on the upper channel line formed by the pair descent from 1.2590 to 1.1900, and this point may be an extreme low point of a possible correction trend aiming towards 1.2230. On the dailies, after the said downward channel has been broken and the floor around 1.1900 tested again last week, we see focus shift towards a new test at 1.22. Zooming on to a 4h chart, we propose a new upward channel that could: 1. confine possible EURUSD losses in the 1.2030 area, then 2. pave the way for a continuation of the upward move started last week. Also in support of this scenario stands the MACD histogram on 4h, which has just crossed the 0 level and seems to be currently attempting a crossover. (remember to click the graph above for a full-size view and copyright info)


Suggestions for swing trading: Starting this week, the swing trade recommendations are restricted to our subscribed members. Please sign up to get your members' area login details.


Disclaimer: Please keep in mind that pipsandtips.com and its publishers do not accept any responsibility for any potential loss or damage (direct or indirect, material or moral) of any kind resulted from the use of any information found on our website. Our analysis and reccomendations are given for informational and educational purposes only, and do not represent offers to buy or sell currencies. Anyone involving in financial transactions does that at his or her own risk and expense, and pipsandtips.com and its publishers shall not be held responsible for any damages resulting from trading real money on the market on the account of the information found here. PLEASE NOTE THAT USE OF OUR WEBSITE IMPLIES KNOWLEDGE AND ACCEPTANCE OF THE TERMS MENTIONED ABOVE.